Personal Loans - Revolving or Installment?

[tim2]

As far as utilization is concerned, are personal loans considered revolving or installment debt?

[Junejer]

That depends on whether it's revolving or installment. No really, is it a revolving account, like a personal line of credit (ie. reusable funds)? If so, revolving. If not, installment.

[RobertEG]

If you were offered credit with a fixed payment every month, that is a classic installment loan... "fixed installment payments against interest and principal."  But installment loans come in many risk flavors.  Many installmentt loans, such as secured and auto loans, offer collateral, thus making them much less risky in the chance of damage upon default. Some personal loans that are unsecured offer greater risk to the creditor, but are still scored as installment loans under FICO.  But that does NOT mean that a potential new creditor will view an outstanding unsecured installment loan the same as a secured personal loan, or an auto loan.  They look at your CR, and not just your FICO score.  Unsecured personal loans are at the lower rung of installment loans in the eyes of a potential new creditor as to their repayment risk.

By simple definition, a mortgage loan is a classic installment loan.  But I am almost certain that the FICO algorithm treats mortgage loans different than other installment loans in thie risk anaylysis, simply because any moron knows that the last credit obligation that anyone will be likely to default upon is their mortgage.  FairIsaac has PhDs generating their risk analysis algorithms, and I dont think they put all installment loans, personal, secured, unsecured, mortgage, etc, into the same risk scoring category.

A revolving line of credit, except for secured cards, lets your balance "revolve" around what you choose to charge, up to your CL, and then repay monthly, with only a minimum, and not specific, fixed monthly contractual payment.  Riskier for the creditor, and thus a higher risk evaluation under FICO than most installment loans.  Thus, their much higher risk weighting in the FICO risk score algorithm.

I guess what I am saying is simply that the division of debt into installment vs revolving is not a black and white division for either FICO scoring, or for lendor decision making.

Message Edited by RobertEG on 05-05-2008 05:27 PM

Message Edited by RobertEG on 05-05-2008 05:35 PM

Message Edited by RobertEG on 05-05-2008 05:38 PM

[Anonymous]

Interesting post RobertEG-

What are your thoughts on "Jingle mail"

60% of homes sold in 2006 and 40% of homes sold in 2007 are worth LESS than what is owed on them -

I know you love math as much as I do- seems that some people are paying their CC's before their mortgages.

OP- Personal loans are installment loans- usually a fixed APR, fixed minimum payment, fixed duration.

other wise they would be called a Linie of Credit or LOC that can be borrowed again and again.  

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RobertEG wrote:

If you were offered credit with a fixed payment every month, that is a classic installment loan... "fixed installment payments against interest and principal."  But installment loans come in many risk flavors.  Many installmentt loans, such as secured and auto loans, offer collateral, thus making them much less risky in the chance of damage upon default. Some personal loans that are unsecured offer greater risk to the creditor, but are still scored as installment loans under FICO.  But that does NOT mean that a potential new creditor will view an outstanding unsecured installment loan the same as a secured personal loan, or an auto loan.  They look at your CR, and not just your FICO score.  Unsecured personal loans are at the lower rung of installment loans in the eyes of a potential new creditor as to their repayment risk.

By simple definition, a mortgage loan is a classic installment loan.  But I am almost certain that the FICO algorithm treats mortgage loans different than other installment loans in thie risk anaylysis, simply because any moron knows that the last credit obligation that anyone will be likely to default upon is their mortgage.  FairIsaac has PhDs generating their risk analysis algorithms, and I dont think they put all installment loans, personal, secured, unsecured, mortgage, etc, into the same risk scoring category.

A revolving line of credit, except for secured cards, lets your balance "revolve" around what you choose to charge, up to your CL, and then repay monthly, with only a minimum, and not specific, fixed monthly contractual payment.  Riskier for the creditor, and thus a higher risk evaluation under FICO than most installment loans.  Thus, their much higher risk weighting in the FICO risk score algorithm.

I guess what I am saying is simply that the division of debt into installment vs revolving is not a black and white division for either FICO scoring, or for lendor decision making.

Message Edited by RobertEG on 05-05-2008 05:27 PM

Message Edited by RobertEG on 05-05-2008 05:35 PM

Message Edited by RobertEG on 05-05-2008 05:38 PM

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